Hardship Letter – Modification
Why write a Hardship Letter to my mortgage company? A hardship letter is a formal document sent by you to your mortgage company. The hardship letter explains why you are no longer able to meet your monthly mortgage payment. Writing a hardship letter provides you the opportunity to share the reasons for falling behind on your payments and offers you the chance to ask for assistance resulting in a modification. A hardship letter is the best way to communicate with your lender when requesting a loan modification or short sale.
What is a Mortgage Loan Modification? A Loan Modification is the process of modifying your existing loan to make your payments more affordable. The purpose of a loan modification is to provide you with a mortgage payment you can afford. It’s actually very similar to a mortgage refinance but instead of finding a new mortgage that you can afford, this just modifies your current mortgage into something you can fit into your budget. A loan modification can result in a lower monthly mortgage payment by permanently lowering the interest rate on your home mortgage and in some cases even lower the principal amount you owe.
Mortgages are modified to the benefit of the borrower in one or more of the following ways:
- Reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed
- Reduction in principal
- Reduction in late fees or other penalties
- Lengthening of the loan term
- Capping the monthly payment to a percentage of household income
- Mortgage forbearance program
Do I qualify for a loan modification? If your current mortgage payments exceeds 31% of your gross (pre-tax) income and you have had a recent financial hardship, job loss or change, divorce, illness or family problems you may be able to qualify. You must be employed or have some type of income. If you are unemployed and have no way of making a modified payment you will be denied. It is OK for the borrower to be current, late, in default, in bankruptcy, or in foreclosure at the time the application for modification is made. The programs available will vary accordingly.
How long can it take to receive approval for a modification? A Loan modification can take several months to obtain. Time-lines vary from lender to lender. Most lenders require homeowners to make modified payments for a trial period of at least 3 months before finalizing the modification. You will be required to send them financial paperwork documenting your hardship before the trial period and again after the trial period is complete. Faxing over current pay-stubs and monthly bank statements throughout the process will keep your paperwork current and up to date.
Keep a log of all phone calls and correspondence between you and your lender. Write down the date, the number you called, the person you talked with, and a brief outline of the conversation. Keep track of important dates. If you do not hear something back on the date promised, call the next day to find out what’s going on. Lenders almost never call you back with updates. Keep a calendar with scheduled dates and phone calls. Be persistent, don’t wait for them to call you, you contact them.
What if I don’t get my modification? Educate yourself by exploring all options. Be prepared for the next step if the modification is not for you. If the lender denies your request for a loan modification or presents an offer that you cannot accept, you will need a back up plan. In addition, other options may be better for you than a loan modification. Short selling is great option for homeowners who are significantly upside down and do not qualify or feel confident in a modification. Click here for more information about short sales.